Investors need more control over ICOs
At least, that's according to ethereum creator Vitalik Buterin. One of the early thinkers to shape the crypto funding mechanism concept, he hasn't quite put the idea aside, last month proposing it could be combined with a decentralized autonomous organization (DAO) to best allow investors to have a say in how money raised gets handled.
Flash forward to today and what Buterin called a "DAICO" is already being developed, with gaming startup The Abyss building its own version for its upcoming token sale.
"This idea found a free place in my heart," said Konstantin Boyko-Romanovsky, the project's founder. "We really want to make something beautiful."
As Boyko-Romanovsky alludes to, the ICO model has been called into question for enabling entrepreneurs to raise big money without a product or platform already built. (Even Boyko-Romanovsky has gotten burned by several ICOs, which is why he believes better tech could help ensure a token's team isn't interested in a cash grab.)
And by adopting the DAICO model first, he also wants to show investors that The Abyss is truly about disrupting platforms for selling video games (like Valve's market-leading site, Steam) by making the promotion of video games more flexible and delivering more money to developers.
Still, while the concept will get a test run with The Abyss project, others are skeptical it will be widely embraced.
First and foremost, like ICOs, the DAO concept has a rough history, since the first DAO had a vulnerability that allowed a "attacker" to transfer $60 million worth of ether to themselves. (The consequences and uneasiness of the fallout still reverberate throughout the community.)
Yet, former Monax legal counsel and ICO skeptic, Preston Byrne pointed to a deeper question: Do ICO investors really want to be bothered with governance?
"Most DAO users are less interested in managing their chosen project than they are in offloading their coins at a massive profit on new entrants as quickly as possible," he wrote.
But Boyko-Romanovsky believes the industry has matured enough, with a significant number of sophisticated, institutional investors coming to the table, to want such insight into the inner-workings of an ICO issuer.
He told CoinDesk:
"DAICO, this is true crypto for me, because it utilizes the best from ethereum."
Minimum viable DAICO
So, just how exactly does the DAICO combine two of ethereum's more popular concepts?
In Buterin's post, he describes a smart contract in which token holders vote to set two mechanisms: a "tap" and a "refund." First, the tap is the rate at which the smart contract would allow the issuing team to draw down ether from the smart contract that holds funds raised in a crowdsale.
"The intention is that the voters start off by giving the development team a reasonable and not-too-high monthly budget, and raise it over time as the team demonstrates its ability to competently execute with its existing budget," Buterin said in the post.
The refund then allows users to vote whether they should "self-destruct" the ICO, which simply empties out the smart contract of all remaining ether and returns it to the token holders in proportion to however many tokens they hold.
To Boyko-Romanovsky, it's a slick idea.
"Most people don't understand what is DAICO and how it will change the industry," he said.
But one that was even more attractive since Buterin himself proposed it.
He told CoinDesk:
"We got much, much more attention because of this."
But as much as Buterin's DAICO idea spoke to Boyko-Romanovsky, the developer is tweaking the mechanism a bit to make it more appropriate for The Abyss.
For instance, The Abyss DAICO will have another way to increase funds to the team, called a "buffer." The buffer is an option for a one-time payment, so if one month they have a major expense which the flow doesn't cover, they can propose a buffer vote to token holders.
On top of that, the project's tap is more limited than the one Buterin proposed.
For one, the flow can never be increased more than 50 percent month over month. So, if the tap is 100 ETH per month now, it can't go higher than 150 ETH per month during the next vote. On the vote after that, it couldn't go higher than 225 ETH per month, and so on.
Even then, the rate of raises could still happen quite fast, so The Abyss team inserted another limit. After each tap and buffer vote, no vote of the same type can happen again for two weeks.
The team also defined some rules about what it takes to establish a "quorum" – the number of people it takes to make a vote legitimate.
The number of voters in each vote has to equal no less than half the number of voters in the prior vote. So, if 100 people vote in the first poll, at least 50 people have to vote the next time to make a quorum. That said, if 200 people vote on that second poll instead, then at least 100 people would be needed to hold a legitimate vote the next time.
Perhaps, though, the most radical change The Abyss team made was in what it takes to launch a refund vote.
The Abyss will seek three to five crypto luminaries to serve as "oracles" over their ICO, and a majority of those oracles must agree to a refund vote for it to be initiated. If the oracles vote for a refund poll, then the token holders get a chance to vote on it.
This change protects an honest developer running a DAICO from investors moving for a refund because a rapid increase in the price of ether makes them want to cash out ether now, instead of wait for ICO returns later.
Having added that stipulation, though, Boyko-Romanovsky said, "I am not afraid that my project will be closed because of refund or something else."
And the industry will soon see, as The Abyss's ICO starts next month, with a hard cap of $60 million in ether.
"People are asking why we need $60 million, but we really need big money to compete with Steam," Boyko-Romanovksy said.
The project's KYC will be run from Switzerland, where the company is domiciled, although the team works from Russia. According to the company's website, in the U.S., only accredited investors can participate in the ICO, but everywhere else the crowdsale is open to anyone.
With the KYC and restrictions on investors, the project looks to be playing by the rules, something that aligns with Boyko-Romanovsky interest in being a trusted member of the crypto space.
According to him, just as the DAICO concept has attracted attention because of Buterin's support, potential investors trust people more than they understand the technology or underlying business models of platforms run with tokens.
And in that way, Boyko-Romanovsky concluded:
"I want to become in this market: No matter what I do, what I do is very good. I think people will see in one year. I will get people's trust."
Vitalik Buterin image via TechCrunch Disrput